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Leap production edges towards positive contribution

Production of CFM International Leap engines has far overtaken that of CFM56s but the transition to the new powerplant family has yet to make up for the loss of profitability as CFM56 output ramps down.

CFM partner Safran states that transition to the Leap engine – which powers the 737 Max and the Airbus A320neo – is "well on track" despite the "uncertain context" and that it expects to manufacture 1,800 Leap powerplants over 2019.

It nearly doubled Leap deliveries, to 861 engines, over the first six months of the year, more than offsetting the declining volume of CFM56s.

But Safran acknowledges that while CFM56 deliveries are generating a profitable contribution, the negative margins and non-recurring costs of Leap production resulted in a €107 million ($118 million) negative impact on recurring operating income.

Safran expects this impact from the transition to become positive in the second half, owing to lower costs.

First-half propulsion revenues were up by 23% to €5.9 billion, which the company attributes partly to higher single-aisle engine sales – a total of 1,119 powerplants which included 258 CFM56 deliveries. Recurring operating income rose by 34% to €1.2 billion.

Safran says it is adapting its delivery plan for Leap-1B engines, for the 737 Max, depending on Boeing orders.

The company has raised its overall revenues and operating income forecast for the full year, based on the strong first-half performance, although the figures depend on the date of resumption of 737 Max deliveries.

Safran says adjusted revenues will grow by 15%, rather than the previous estimate of 7-9%, while free cash flow will be around 50-55% of adjusted recurring operating income, assuming the 737 Max returns to service in the fourth quarter.

Chief executive Philippe Petitcolin says the impact of the 737 Max grounding on Safran's free cash flow is a "timing issue" which "should reverse in the following quarters". The company says it amounts to a "deferral of cash collection".

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